Doctors working for subsidiary and serving group companies qualify for share-based employee perks

SEBI/HO/CFD/PoD-2/OW/P/2022/53220/1 dated 19-10-2022

Facts

In the instant case Kids Clinic Limited, a Company registered under the Companies Act, 1956 filed a Draft Red Herring Prospectus with SEBI on 10th Feb 2022 with the intention to list its securities.

The Company engaged super specialist doctors on consultancy basis. With a view to optimize the business of the company, it was proposed to employ doctors exclusively in the subsidiary company and further those doctors would also be engaged on a consultancy basis by the Kids Clinic Limited.

The doctors were also permitted to run their private clinic outside working hours. The Company proposed to award ESOPs to the doctors. The Company sought the following information from SEBI

“Upon listing of the Company, will it be permissible, as per SEBI (Share Based Employees Benefit and Sweat Equity) Regulations, 2021, for stock options to be granted under the ESOP plan 2013 to the doctors who are proposed to be engaged as Eligible Employees.”

The SEBI vide. its interpretative letter submitted that as per regulation 2(1)(i)(i) SEBI (Share Based Employees Benefit and Sweat Equity) Regulations, 2021 defines the “Employee” as a person who is designated as an employee by the Company, who is exclusively working in India or outside India.

Further, as per regulation 2(1)(i)(iii) a person who is designated as an employee by the company/its group/subsidiary/associate companies is also eligible for stock options.

In the current case, doctors would be exclusively employed by the subsidiary and provide services to the group. Further, the company also mentioned there shall be no other employer-employee relationship with any other entity or company outside the group. Therefore, the SEBI stated that the said doctors would be eligible for the grant of share-based employee benefit under SEBI (Share Based Employees Benefit and Sweat Equity) Regulations, 2021.

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